A LendingTree study just revealed that Dads are the number 1 source of financial advice.
Thankfully, my dad, a Chemical Engineer by trade, is one of the smartest people I know.
He taught me a great deal across a wide-range of topics, from changing the oil in a car to swinging a golf club (I’m no longer good at either, but that’s due to shortcomings of the student, not the teacher).
While many things have been forgotten over the past 33 years, there are 3 things he taught me about Money and Life that have always stuck with me.
#1 – Make Your Money Work For You
At a young age, all I knew about money was that people would go to work, they would get paid and then we could occasionally buy cool stuff with that money.
As I got older and more curious, one simple question led to a monumental discovery.
Me: “How much money do you make?”
Around this time, I think I had enough awareness to realize that $40,000 to $50,000 per year was probably normal and $100,000 per year was a lot.
His answer completely caught me off guard, though.
Dad: “From what?”
Me: “You know, from your job.”
Dad: “Well, the money I make from my job is only a fraction of what I make.”
Dad: “You see, some people work 8-10 hours a day for 250 days a year and earn $100,000.
Now, there are other people who earn $100,000 and do nothing.”
Me: “Wait, what?”
He pulled out the ball-point pen that was always clipped onto his sweater. (It never occurred to me how strange that was until I typed it just now.)
He wrote $1,000,000 on a napkin.
Dad: “Let’s say you have a million dollars invested and, on average, the stock market returns about 10% a year.
He continued to write an equation:
$1,000,000 x 10% = $100,000
Dad: “If you can consistently save and invest, then over time your investments will make more money than other people make from working.
This message simultaneously resonated with the 30% of my brain that is highly-motivated and the 70% that is extremely lazy.
But, as cool as it may be to generate $100,000 per year of income from your investments, it pales in comparison to what happens if you keep the money invested and let it ride…which brings us to lesson 2.
#2 – You Will Likely Make More in the Last Few Years of Your Life Than Every Other Year Combined.
It’s pretty easy for people to understand Compound Interest and how it works in the near-term.
In year 1, if your $1,000,000 gained $100,000; then at the start of year 2 you’d have $1,100,000. Earning 10% in year 2 would lead to a gain of $110,000 which would give you $1,210,000 at the start of year 3.
But, our brains often underestimate the impact of Compound Interest over the long-term.
To illustrate what I mean, imagine you’re playing a round of golf and your buddy says, “let’s bet $1 on the first hole and then double the bet on each hole thereafter.” $1 on the first, $2 on the second, $4 on the third and so on.
If you happened to lose the last 2 holes to your buddy, how much would you owe him?
Answer: $196,608
To further illustrate the point, what if I told you that Warren Buffett became a millionaire at age 30, yet 99% of his wealth was earned after he turned 50?
| Age | Net Worth |
| 30 | $1M |
| 32 | $1.4M |
| 35 | $7M |
| 43 | $34M |
| 47 | $67M |
| 52 | $376M |
| 56 | $1.4B |
| 66 | $17B |
| 72 | $36B |
| 87 | $83B |
#3 – Believe None of What You Hear and Half of What you See
One of my pet peeves is when someone says…
“You know, they say that…”
…and then people accept it as fact.
Unfortunately, “they” generally fall into one of the following buckets:
- Not a Doctor or a PhD
- Someone who doesn’t know what they don’t know
- Someone who does know and they’re just lying
- Someone who wasn’t there or hasn’t done it
- Marketing
- One-sided news source
- Misleading headline
- An idea not supported by data
This very simple idea has caused me to avoid the noise, judge everything for myself and form my own opinions based on personal experience.
